We Study Billionaires - The Investor’s Podcast Network - TIP 009 : How Charles Koch amassed $43 Billion Dollars (Investing Podcast)

Starting point is 00:00:00 This is episode nine of The Investors Podcast. Broadcasting from Bel Air, Maryland. This is the Investors Podcast. They'll read the books and summarize the lessons. They'll test the waters and tell you when it's cold. They'll give you actionable investing strategies. Your host, Preston Pish and Stig Broderson. Good morning, everybody.

Starting point is 00:00:29 This is Preston Pish. And as usual, I'm accompanied by my co-host, Stig Broderson. And so today we're going to be doing a book on Charles Koch, who is the CEO of Coke Industries. And just so you know, Coke's net worth, his personal net worth, is $43 billion. So Charles Koch has done pretty well for himself. And the book that he wrote is called The Science of Success. This book was something that Stig and I thoroughly enjoyed. It's not too terribly long.

Starting point is 00:00:59 It's about a normal size, length book. but the content inside this book is just fantastic. And I think that you can really tell that Charles wrote this himself or that he contributed a lot to the actual content in this book because you can tell he's a very educated and scholarly person as you're kind of going through it because some of his points are just really quite impressive, to be quite honest with you. So what Stig and I are going to do is we're going to highlight, as we usually do, the high points of the book. And then at the very end, we'll talk about what we didn't like about the book. And we'll quickly push through this.

Starting point is 00:01:31 so you guys can really capture the essence of what it is that made Charles Coke such a success in business. So before we do that, I want to do a quick shout out to our audience. So we've been, Stig and I've been receiving a lot of messages from people in the audience, and some are good, some are bad. But either way, we appreciate your comments because you're giving us information that we need in order to make the show better for you. And that's really what we want to do.

Starting point is 00:01:55 So people like Alex Shea, he sent us a message about the sound quality. so we're working on that and hopefully you're seeing a difference on this episode. We got a message from Jesse Hayback about the media player not properly working on the site. So Jesse, we've got a programmer working on that and you should see that fixed on the site soon. Mark Andrew, your comments and motivation on YouTube and all the other places, I can't tell you how much I appreciate it. I get the biggest smile every day whenever I see your comments. So just wanted to throw a shout out to a few people in our audience and just let you know that we really appreciate what you're doing.

Starting point is 00:02:29 doing for us. So let's jump right to the book. The very first highlight that I have for the book was discuss this idea of change adaptation. This was something that was prevalent throughout the entire book. And what he means by change adaptation is that Charles Koch is a firm believer that you have to be as a leader and as an executive, as an owner of the business, you have to be prepared for your business to change course and move with the markets. Okay. And I, and I, I think that that's something that I think a lot of people might not get because a lot of people want the checklist. A lot of people want to say, if I do steps one through 10, I'm going to be successful. And what we found in this book was that Coke continually told the reader that if you're implementing my steps, which he has five main points for his decision making process.

Starting point is 00:03:23 He says, if you're implementing these steps like a checklist, you're probably not doing it correctly. And I know that that's a little hard for people maybe to grasp, but I think his point is this. You have to be fluid. You have to be able to understand what is it that your customer ultimately wants and what are you doing to improve that value to that customer and to society continually. So if you make a product for the very first time and let's say that the product is a new chewing gum, how can you continue to improve that chewing gum for your audience and for your customer base over time as maybe a new competitor comes out with something new.

Starting point is 00:03:59 Because what he finds is that a lot of businesses, they make the product or they make the service once, they don't adapt to changing market conditions and they just continue to sell, continue to sell it, their margins continually go down over time, and then the business fizzles out and disappears like everything else. And so this idea, this change adaptation, being pliable, being willing to change is the thing that I'd say was the number one point in the book that Stig and I both took away. So Stigs and I go ahead and hit you with the second point that he had as far as the highlight for the book. Yeah, if there's just one thing that I can piggyback off, it's the thing you said about a checklist.

Starting point is 00:04:37 Because he has these principles that we'll talk about later. And it might seem like you're saying, Preston, that we have like 10 points and you need to have a checkmark out of each one of them. But the way he actually sees this change adaptation is really a way of thinking, a business philosophy, if you want. way to approach things, nothing that was actually really, really strong. So I also think it might be quite hard when you read this and just thinking, well, I should just do these five things, but it's actually just the mindset, or not just your mindset, but you have to change your mindset to actually do the same thing as Charles Coe could be so successful doing so far. So another takeaway I really like was the concept of opportunity cost that Charles Cove is

Starting point is 00:05:21 talking about. And the way that he presents that is that he's saying there's a set of that governs humans' behavior. And one key element is that we as humans tend to look back in time instead of looking forward. And he provides this brilliant example in his early years in co-industries where he was evaluating the inventory. And he wanted to get rid of this inventory because they was just piling up. And what he was told was that they could not sell off the inventory because if they did that, it would incur a loss on the income statement.

Starting point is 00:05:55 And he actually, you know, Charles Cook, he thought, found that ridiculous because he wanted to look forward in time. You know, the cost to the inventory, that was sunk cost. He was looking at the inventory. He thought that you could use the inventory better elsewhere. But it's this human behavior that was really the problem that if you think that you incur a loss, you tend to make the wrong decisions. But I actually have a, I think you have a good example of this, because if people buy a stock, and that stock tends to lose value. Even if people realize that they probably made the wrong stock pick,

Starting point is 00:06:31 there's a good chance they still hold on to that stock because they feel that they will not really have incurred a loss before they sell the stock. So what's happening is that they don't look at the opportunity costs. They don't look at saying, I can actually apply this, and these funds better into another stock. They're just solely looking at this stock or this inventory and thinking, do I make a profit or not.

Starting point is 00:06:54 You know, Stig, it's funny because a lot of people think that because they don't make a decision, they're not making a decision. But in this case, what's kind of interesting is when you decide to not move out of that position, let's say you invested in stock X and it went down by 10%, and you don't want to sell it to move into the other opportunity, which you think is much more promising because you don't want to take a loss. And so you decide not to do anything. that lack of a decision is actually a choice that unconsciously or consciously you just made in that you chose to continue to have maybe an investment that will maybe persist at no gain or even decrease more instead of moving in into something that you felt was more promising that was going to grow at 10%. And I know that's a very hard concept for a lot of people to take.

Starting point is 00:07:41 And to be honest with you, this was my favorite point in the whole book was this discussion of opportunity cost when he was talking about this inventory because it really kind of hit home to me and I think it applies probably most to a lot of investors that have that situation where they have a loss on their on their account for a particular pick and they could take that loss and move it into something else that is definitely more promising and they refuse to do it because they don't want to take a loss and you know it was very interesting to see how Charles Koch you know this billionaire thinks about that particular situation and he was just like sell it take the loss put it into the better opportunity because all you can do is

Starting point is 00:08:18 act at time now and look forward like Stig said. So really great point in the book. I really liked it. So the last thing that we're going to highlight in the book is we're going to go through Charles five points to what he refers to as market-based management. And that's what he refers to throughout the entire book is he says that he has a process that he uses for buying new businesses, for all of his decision-making process, and that is called Market-Based Management, or MBM, is how he refers to it. and there's five steps to MBM. Okay. And so his first step is vision.

Starting point is 00:08:52 So for vision, he wants to know where and how the organization can create the greatest long-term value. And I think that long-term is the real key word here. Because a lot of people, whenever they buy a certain asset or something like that, they think very short-term. They think, how can I make my money in the next year or next two years and get it back? And Charles is of the opinion of let's see where we're going to go. Let's look at that 10, 20, 30.

Starting point is 00:09:18 I mean, it's just exactly like Warren Buffett and all these other billionaires that we study in research, is they're always thinking very long-term value. And so that's where the vision that he has really kind of comes into play. Stig, did you have anything else that you pulled apart from that first tenant that he has of the five tenants with respect to vision? Yeah, so I just have a quote that really loved about the book. It was when Kirk was saying that success is harder to overcome that adversity. and I thought that was really, really strong. So it's not like he mentioned any specific company,

Starting point is 00:09:50 but what comes to mind is company like Sears and Koneg and Syrox, which has been hugely successful in the past, but they're not successful anymore because they haven't been able to adapt to the new times. And I really, really think that this quote, success is harder to overcome that adversity was a really strong point in the book. Let's take a quick break and hear from today's sponsors.

Starting point is 00:10:13 All right. imagine spending three days in Oslo at the height of the summer. You've got long days of daylight, incredible food, floating saunas on the Oslo Fjord, and every conversation you have is with people who are actually shaping the future. That's what the Oslo Freedom Forum is. From June 1st through the 3rd, 2026, the Oslo Freedom Forum is entering its 18th year bringing together activists, technologists, journalists, investors, and builders from all over the world. Many of them operating on the front lines of history. This is where you hear firsthand stories from people using Bitcoin to survive currency collapse, using AI to expose human rights abuses, and building technology under censorship

Starting point is 00:10:55 and authoritarian pressures. These aren't abstract ideas. These are tools real people are using right now. You'll be in the room with about 2,000 extraordinary individuals, dissidents, founders, philanthropists, policymakers, the kind of people you don't just listen to but end up having dinner with. Over three days, you'll experience powerful mainstage talks, hands-on workshops on freedom tech, and financial sovereignty, immersive art installations, and conversations that continue long after the sessions end. And it's all happening in Oslo in June. If this sounds like your kind of room, well, you're in luck because you can attend in person. Standard and patron passes are available at Osloof Freedom Forum.com with patron passes offering deep access, private events, and small group time with speakers. The Oslo Freedom Forum isn't just a conference. It's a place where ideas meet reality and where the future is being built by people living it. If you run a business, you've probably had the same thought lately. How do we make AI useful in the real world? Because the upside is huge, but guessing your way into it is a risky move. With NetSuite by Oracle, you can put

Starting point is 00:12:05 AI to work today. NetSuite is the number one AI Cloud ERP, trusted by over 43,000 businesses. It pulls your financials, inventory, commerce, HR, and CRM into one unified system. And that connected data is what makes your AI smarter. It can automate routine work, surface actionable insights, and help you cut costs while making fast AI-powered decisions with confidence. And now with the NetSuite AI connector, you can use the AI of your choice to connect directly to your real business data. This isn't some add-on, it's AI built into the system that runs your business.

Starting point is 00:12:41 And whether your company does millions or even hundreds of millions, Netsuite helps you stay ahead. If your revenues are at least in the seven figures, get their free business guide, demystifying AI, at netsuite.com slash study. The guide is free to you at netsuite.com slash study. NetSuite.com slash study. When I started my own side business, it suddenly felt like I had to become 10 different people

Starting point is 00:13:08 overnight wearing many different hats. Starting something from scratch can feel exciting, but also incredibly overwhelming and lonely. That's why having the right tools matters. For millions of businesses, that tool is Shopify. Shopify is the commerce platform behind millions of businesses around the world and 10% of all e-commerce in the U.S. from brands just getting started to household names. It gives you everything you need in one place, from inventory to payments to analytics. So you're not juggling a bunch of different platforms.

Starting point is 00:13:39 You can build a beautiful online store with hundreds of ready-to-use templates, and Shopify is packed with helpful AI tools that write product descriptions and even enhance your product photography. Plus, if you ever get stuck, they've got award-winning 24-7 customer support. Start your business today with the industry's best business partner, Shopify, and start hearing... Sign up for your $1 per month trial today at Shopify.com slash WSB. Go to Shopify.com slash WSB. That's Shopify.com slash WSB. All right. Back to the show.

Starting point is 00:14:21 Yep. I love that quote. You see it so many times where these companies make a lot of money. They start just hiring as many people as they can, not selecting the right people and being choosy. And their success actually becomes their greatest setback because then they fill their ranks. They fill all the people within their organization. at such a quick pace and, you know, it just, it doesn't work out that way.

Starting point is 00:14:45 They're not systematically slowly growing it in a conservative manner that leads to more long-term value. And I think that's really what he's referring to with Stiggs quote and just in general with the vision tenant. So the next step that he has in this five-step MBM process is virtue and talent. So that kind of goes to my point that I was just making. And you see this with a lot of billionaires that hiring. the right person is probably one of the most important things you can do is you're growing

Starting point is 00:15:16 your business. And what you see is when somebody comes out with a new product or service, it's really successful, that it does really well, has high margins. The first thing that a lot of managers and owners want to do is, well, let's expand the business. Let's grow it as fast as we can, and they just start hiring. And they start hiring the wrong people. And as soon as you hire one wrong person, guess what? That person then becomes a manager and they hire another five wrong people that are just like them. And, and they're just like them. And so you see this trend with Jeff Bezos specifically. I mean, he's emphatic about hiring the right people.

Starting point is 00:15:48 Steve Jobs, if you've read Steve Jobs book, emphatic about hiring the right people. And so Coke obviously has the exact same mindset as these other billionaires and that he would much rather sit on an empty seat and potentially forego revenues by hiring the right person than to hire the wrong person and put them in. there and just it would act as a cancer to their organization. So I think that this was a very important point. If you're a business owner, entrepreneur, something that you probably definitely want to consider is, do I really want to compromise growing too fast and having the wrong people in my organization or do I want to take it a little bit more conservative, put the right people in there and make good, solid decisions? Because that's the foundation of your organization. And I think that's what was the main point here. Yeah. And I really, when I read the heading, it said virtue and

Starting point is 00:16:40 talent. And I don't know if I'm really over-analyzing anything, but there's a reason why he put virtue before talent. And he's actually saying that it's much more important to have a person with a lot of virtue and only a little talent than the other way around. And one of the principles that he talks about in this chapter was that he wants his employees to think and act like an entrepreneur. And I thought that was a really good point. Because if you have employees that things and act like entrepreneur, they think like the owner of the company, they don't think like employees. So they don't think that they should give away the time in exchange for money. They're thinking as entrepreneurs, I said, which means that they can change everything that they want

Starting point is 00:17:23 in the organization and an entrepreneur can grow and you can build and it can be visionary. And I thought there was such a strong, strong point. Yep. I love that point because so often do you go to a restaurant or a store, something like that and you see a person thinking like an employee and not like an owner. For example, I was at the supermarket the other day and a person was setting up their cookie stand and I wanted to try the free sample of the cookie. Of course I did. So I asked the lady, hey, can I have a sample of that? I'm not set up yet. You're going to have to come back in five minutes and her whole stand was set up. And I'm thinking to myself, you don't think like an owner. You think like an employee.

Starting point is 00:18:03 And it wasn't to dig her. It was just you could have made a sale, you know, if I tasted the cookie and I buy the whole thing. So that's a perfect example of a person who's thinking like an employee versus thinking like an owner. And that was what Charles Koch was saying in the book was, I want to hire people that think like owners. I want to hire people to think like entrepreneurs, because when you fill your ranks and your whole organization with people like that, I mean, you're just destined for success. Another thing that I wanted to hit on real fast, which Stig brought up about the virtue being in front of the talent was Coke had this amazing quote in the book. And the quote went like this. Employees with little virtue.

Starting point is 00:18:38 and lots of talent have done more harm to business than employees with great virtue and little talent. So that's a great point. And I just keep thinking, Preston, did you go back and, you know, try the cooking? No, I did. Great point. So I was, I was, it was probably because of the fact that I always look at things from a business standpoint. I did not go back on purpose because I was like, that person's thinking like an employee, not a business center. So I did not go back and taste the cookie. I like that question in this, Stig. Okay. So this just proved that he has a good point.

Starting point is 00:19:16 Best question of the whole episode. All right. So let's go to the next thing. The next point that he had, so we covered the first two of the five points, the third point that he had was knowledge and process. So I think this one goes without saying. When you look at a picture of Charles Koch, he's typically standing in front of a whole stack of books behind him.

Starting point is 00:19:36 he greatly values education. And I think that that just goes without really putting too much emphasis on this one. I think everyone can just intuitively understand why that's important. The one thing that I would say that came out of this section that I found kind of interesting was that he uses the profit loss statement or his income statement as his metric and his key guide to determining how much value is a person actually creating for the process that they're managing. And so he starts off. He kind of looks at okay, they bring in this on their top line. This is their bottom line. This is what they net. And that person created this much value for the company. And that's how he kind of determines and measures their worth, if you will. So you obviously need good data in order to make good decisions. The other thing that he hit at in this specific point in the book was the idea of how much he puts emphasis on optimization and lean efforts.

Starting point is 00:20:28 So a lot of people know the buzzword lean six sigma. That's something that I could see inherent throughout the entire book. in the way that Charles Koch thinks. He's constantly thinking of ways how he can make things more efficient and get a better product out of that efficiency opposed to more defects. So we're going to have a link to a book in the executive summary that we type up for this if you're interested in lean efforts because that's actually a very important aspect to just managing a business.

Starting point is 00:20:59 And we could go for literally five to 10 episodes just talking about Lean Six Sigma and those kind of ideas. but we have a link in the show notes and we'll also have a link in our five-page executive summary for you to kind of review that type of idea and to explore that more. What I liked about this chapter was that he was talking about accuracy and precision,

Starting point is 00:21:20 which is actually not the same thing. So what he is saying is that you should have access to the right information. But he also says that you shouldn't be too detailed in your information. And I think that's a really good point because you see a lot of calculation. There might be a calculation

Starting point is 00:21:35 for a business, stocks or whatever, and you will see they will have like $3.278, something like that. I know I'm just over-saturating here, but he's just saying you need to have access to the right data. You need to have access to the right data and then analyze on that. Let's take a quick break and hear from today's sponsors. No, it's not your imagination. Risk and regulation are ramping up. and customers now expect proof of security just to do business. That's why VANTA is a game changer. VANTA automates your compliance process and brings compliance, risk, and customer trust together

Starting point is 00:22:15 on one AI-powered platform. So whether you're prepping for a SOC 2 or running an enterprise GRC program, VANTA keeps you secure and keeps your deals moving. Instead of chasing spreadsheets and screenshots, VANTA gives you continuous automation across more than 35 security and privacy frameworks. Companies like Ramp and Ryder spend 82% less time on audits with Vanta. That's not just faster compliance, it's more time for growth. If I were running a startup or scaling a team today,

Starting point is 00:22:45 this is exactly the type of platform I'd want in place. Get started at Vanta.com slash billionaires. That's Vanta.com slash billionaires. Ever wanted to explore the world of online trading, but haven't dared try? The futures market is more active now than ever before, and Plus 500 futures is the perfect place to start. Plus 500 gives you access to a wide range of instruments, the S&P 500, NASDAQ, Bitcoin, gas, and much more. Explore equity indices, energy, metals, 4X, crypto, and beyond. With a simple and intuitive platform, you can trade from anywhere, right from.

Starting point is 00:23:26 from your phone. Deposit with a minimum of $100 and experience the fast, accessible futures trading you've been waiting for. See a trading opportunity. You'll be able to trade it in just two clicks once your account is open. Not sure if you're ready, not a problem. Plus 500 gives you an unlimited risk-free demo account with charts and analytic tools for you to practice on. With over 20 years of experience, Plus 500 is your gateway to the markets. Visit Plus500.com to learn more. Trading in futures involves risk of loss and is not suitable for everyone. Not all applicants will qualify. Plus 500, it's trading with a plus. Billion dollar investors don't typically park their cash in high-yield savings accounts. Instead, they often use one of the premier passive income

Starting point is 00:24:16 strategies for institutional investors, private credit. Now, the same passive income strategy is available to investors of all sizes, thanks to the Fundrise income fund, which has more than $600 million invested and a 7.97% distribution rate. With traditional savings yields falling, it's no wonder private credit has grown to be a trillion dollar asset class in the last few years. Visit fundrise.com slash WSB to invest in the Fundrise income fund in just minutes. The fund's total return in 2025 was 8%, and the average annual total return since inception is 7.8%. Past performance does not guarantee future results, current distribution rate as of 1231, 2025. Carefully consider the investment material before

Starting point is 00:25:04 investing, including objectives, risks, charges, and expenses. This and other information can be found in the income fund fund fund's prospectus at fundrise.com slash income. This is a paid advertisement. All right. Back to the show. Yeah. Don't over process it is what he's saying. You know, and that goes back to the Lean 6 Sigma. That's one of the key tenets of that is don't over process something. Just come up with what's good enough. What do you desire? Like, what's your outcome? What's your end state? What do you need? And get to that point and then move on, move to the next task. You know, be efficient with your time. So great point, Stig. So we'll move to the fourth tenant of the five and that's decision rights. So this.

Starting point is 00:25:45 This addresses the idea that the right people are in the right roles with the right authority to make decisions. So regardless of whether a leader takes responsibility or delegates responsibility for their decisions, they are still responsible for all their actions, regardless of what happens with what their subordinates do with those decisions that they've been given the authority to. And I think that that's something that sets a culture within an organization that you are responsible for the authority that you've been delegated. And when you have a culture that that embraces that and is used to that, you're going to see people taking ownership for their decisions and know that they're the person who's ultimately responsible for what's happening within their organization. Okay, so let's hop to the very last tenant that Charles highlights out of the five, and that is incentives. This is one that I really like to kind of talk about because a lot of the times when you see people setting up a contract with another company and things like that, they always want to put incentives in the contract.

Starting point is 00:26:46 And so I think incentives in general are a very good thing. But I think that one thing that a lot of people fail to recognize is why are you incentivizing something? Okay. Now, let me give you an example. Let's say that you need somebody that you hired and you wanted to incentivize them in order to produce something at an accelerated timeline. Say that it probably would take two months to do it, but you need it in a month. So in order to get them to do it for you in a month, you're going to incentivize them. Okay, so you incentivize them through monetary incentives or whatever the incentive might be. So what a lot of people fail to

Starting point is 00:27:21 realize is typically whenever you incentivize something, there might be a cost, an intangible cost potentially with that incentive. So if I incentivize somebody to do something very quickly, the cost to that incentive could potentially be the quality of the product that they produce because they've done it in an accelerated environment. So it's very important to understand that every time you put an incentive in place, there's sometimes a cost that's associated with that incentive. And that's just one little highlight that I wanted to point out. The other thing that Charles talks about specifically in the book is that he tries to find

Starting point is 00:27:57 the ideal incentive that best motivates the individual employee. He does not like to put out blanket incentives. It doesn't work like that. And he's saying that if you really want to have a successful organization, you've got to empower your leaders through those decision rights, which was the last tenant, to go out and understand your employee to the point where you know it incentivizes them. Some people are incentivized by money. Other people are incentivized by more leave in the year. Whatever it is, Koka is basically saying you need to tailor that and customize it to each person within your organization. And most importantly, whenever you do that, it needs to be incentive that's long-term value to the person, to the company, to society for the product that they're producing.

Starting point is 00:28:42 And it was just a great discussion that he had on what it is that's going to keep the right people within your organization because that's what incentives really kind of do. It's keeping that knowledge base and keeping those quality people within your organization, not doing it in excess. Okay, so that's real briefly, those are the five tenants of market-based management, which is the style of leadership that Charles Koch implements on a daily basis within his organization. And the key point that he summarizes at the very end of the book is that you can't implement these five tenants just step by step. You have to be understanding that change piece. You've got to be dynamic. You've got to be willing to constantly reassess where am I at now and where am I going. So fantastic read.

Starting point is 00:29:29 We thoroughly enjoyed it. So let's talk about maybe something that you didn't like. So Stig, what was a piece in the book that you didn't really particularly care for? Well, I got to say when I read the book and when I heard all his points, it was almost like sitting with a checklist in front of me. Because I was just saying like, check, check, good point, another good point, check. That was really, really amazing. I think he hit all the heartlights there. I think if there was something that I should say was that the way of presentation,

Starting point is 00:29:57 sending it was perhaps a bit odd from time to time. So just the words of caution if you decide to read the book and really do recommend that you actually dig into that book, it might be a bit dry here and there. And I think he has a minor in philosophy. And I think that's probably also something that you can that you can see in his book. He's very philosophical about a lot of these leadership things where I'm probably more the get-to-the-point kind of guy. He actually has the point, but it might take it might take a while here and there. Yeah, and I agree with your point. I think that was probably the biggest,

Starting point is 00:30:32 I don't even want to say that it was a bad part of the book, but I think for some people that might not be as interested in business as maybe Stig and I are, I think you might find the book a little dry. It was, you know, it was probably a little hard to be excited to continue reading it. Where I,

Starting point is 00:30:49 you know, I obviously read it like it was an action novel, but I'm a little geeky when it comes to business books. So I think some people might. find it a little dry. Yeah, and just to give you an example, for instance, in the discussion about incentives, you know, for a guy like me, I'd probably like to know. So if I'm Charles Koch and I'm hiring a new person, how will my contract looks like?

Starting point is 00:31:11 I mean, that's kind of the nitty-gritty details I want to know. But he was more into, you know, history part and philosophy. So he said, well, so if we look at how the pilgrims came to America and then what happened? I mean, that was just his approach. I mean, the mind was the same, but he just got about it in another way. Yeah. Yeah, no, I agree. And I think that, you know, I think he was really writing the book for his employees

Starting point is 00:31:35 so that they kind of understand his mindset and that culture is really being bred within Coke industries. So I think that was his primary audience, was his employee base. And then anybody else who's interested in knowing more about him. So in general, though, I don't want to distract from the fact that I really kind of classify this book as probably one of the best books that I've read on business. So really enjoyed it. I highly recommend everyone goes out there and reads this. If you don't have the time and you want to read our executive summary, our five-page executive summary,

Starting point is 00:32:03 make sure you sign up on our mailing list and we'll send it to you. But at this time, let's go ahead and play the question that we have from one of our audience members. And this question comes from Trey Locker B. Hey, my name is Trey. I'm a fan of that podcast and also the Buffett's books website. I was looking into Apple, not a stock that Warren Buffett would. buy nor would I possibly, but just had a curiosity. I was running it through the intrinsic calculator, and I noticed that the intrinsic value was about 317, and the quote right now is only about 108.

Starting point is 00:32:37 So I imagine that the intrinsic value is based off of the stock price before it split. So it would have been, it was about 645, I think right when it split. So I was wondering how to amend that, so it would represent the most recent quote of the stock. And I was also finding the same issue with RDS.A. Looks like I found an intrinsic value of 204, and the quote is only about 70. So I wanted to, before I got really excited about finding things like that, I wanted to make sure I'm not misrepresenting them via the split stock price.

Starting point is 00:33:17 All right, thanks a lot. So, Trey, fantastic question. question, and this is something that Stig and I see quite a bit on the forum, people asking, how do you value a company whenever you have a stock split? I'll tell you this. So we have two different intrinsic value calculators on Buffett's books. We have one that's based off of a model that would be a similar way to valuing fixed income securities, which is bound by time. And that's the intrinsic value calculator that you'd see on Lesson 21. And then we have another calculator, which is on Lesson 35 of Buffett's books, which calculates the intrinsic

Starting point is 00:33:51 value using a discount cash flow model. And this one is not bound by time. This one values the business into infinity. The main reason why we have the two different models really kind of comes down to a very obscure topic called look through earnings, and that addresses the calculator, which we have on Lesson 21. So if you're valuing Berkshire Hathaway, Berkshire Hathaway has what's called a lot of look-through earnings, and it's a accounting concept that would probably take me a couple episodes to describe the people. But to just make things really simple to answer your question, I'll tell you, I would use the calculator on less than 35 if you're dealing with a company that has recently had any type of stock splits because it's going to naturally take that

Starting point is 00:34:33 into account by looking at the cash flow over the last 10 years and then using the current number of outstanding shares in order to determine the value of the business. So without getting too technical and probably hurting people's ears. We'll just kind of leave the answer to your question there. If it's something that you want to discuss in more detail, I highly recommend that you go to our forum and talk to some of the people in the community there because they might be able to describe it in more detail. So, Trey, thanks for the outstanding question. Stig and I will send you a free-sign copy of our book, the Warren Buffett accounting book. And actually in the book, it talks about that concept a little bit more in detail. So if you're interested in reading that portion of it, you'll

Starting point is 00:35:10 find it in the book that we're going to send you. So everybody, if you're interested in reading our show notes, make sure that you go to theinvestorspodcast.com. You can download the executive summary that Stig and I typed up about this book. Great having you listened to us today. Keep the comments coming throughout the community because that's helping us develop a better product for you. So really appreciate all of that. So thanks for listening and we'll see you next week. Thanks for listening to The Investors Podcast. To listen to more shows or access to the tools discussed on the show, be sure to visit www. www.com.com. Submit your questions or request a guest appearance to the Investors podcast by going to

Starting point is 00:35:48 www. www. asktheinvestors.com. If your question is answered during the show, you will receive a free autographed copy of the Warren Buffett Accounting Book. This podcast is for entertainment purposes only. This material is copyrighted by the TIP Network and must have written approval before a commercial application.

We Study Billionaires - The Investor’s Podcast Network - TIP 009 : How Charles Koch amassed $43 Billion Dollars (Investing Podcast)

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.